India’s central bank is expected to cut key lending rates by about 0.25 per cent or 25 basis points, thereby releasing more funds in the economy, in its annual credit policy for 2012-13 on Tuesday.
The speculation is strongly supported by investors, markets and bankers who feel that the move can put life back into the economy, which has been marred with low factory output and moderation in consumption.
Earlier in March, the Reserve Bank of India (RBI) had slashed the cash reserve ratio (CRR) which is a key percentage that determines the deposits a bank needs to hold with the RBI.
The rate was cut from 5.5 per cent to 4.75 percent. The main reason cited by the industry for the RBI to cut rates is the sluggishness with which the industrial production grew in February to just about 4.1 per cent. Manufacturing and consumer goods segments were the most hard hit.
The impact of a liquidity crunch has also impacted the country’s GDP (gross domestic product), which grew at its slowest pace in the last three years at 6.1 per cent in the third quarter of 2011-12.
At the same time, inflation numbers that came in Monday showed a marginal sobering affect at 6.89 per cent in March as compared to 6.95 per cent in the previous month.